Operations

How To Fine Tune Profits On A Limo Fleet

Suppose you bought a 2012 Chevrolet Suburban at the start of 2013 for $32,800 with 23,400 miles. Two years later, you sell the Suburban for $18,000, with 135,000 miles. Sound like a good deal for a limousine fleet operator?

For Houston operator Erich Reindl, such deals are standard operating procedure in keeping sedans and SUVs stocked in his 37-vehicle chauffeured fleet. He buys newer pre-owned vehicles when they come available based on price, not whether he needs them that moment. Reindl calls it a flip-and-hold strategy.

“We usually have one or two cars sitting at the office here,” says Reindl, who started Avanti Transportation in 1994 and adopted his cash-only strategy in 2006. “They can afford to sit for a few months until we sell one. I’m flipping cars all the time now. You can get a better deal on cars when you are not in a hurry to buy something. You have a better negotiation standpoint.”

Reindl still buys all of his vans and mini-buses new, but like many operators, works out a formula for pre-owned versus new fleet vehicles to ensure minimal overhead and maximum profits.

Finding A Fleet FormulaOperators will tell you there is no right or wrong approach to vehicle purchasing, since the profit-purchase business model at limousine and bus companies run the full gamut depending on local market factors. A chauffeured company heavy on corporate and VIP clients who want the newest and best vehicles must always buy new, especially if it turns the fleet over every two to three years to keep a current fleet image.

However, for small- to medium-sized operations in second-tier or lower population centers with less discriminating clienteles, pre-owned fleet vehicles can provide the financial wiggle room for revenue and sales growth.

“I let someone else take the depreciation hit,” says Jeff Wright, owner of Pinnacle Car Services in the northwest Arkansas town of Rogers. He runs a 23-vehicle fleet about 65-70% pre-owned. Wright buys sedans and SUVs with about 50,000 miles and keeps them several years.

“We’ve run those vehicles until they no longer represent the quality they should. I sell them for pennies on the dollar, but I can usually run them about one to two years after they are paid off in full.”

Regal’s corporate fleet that serves his Nashville operation includes two 2013 GMC Yukon XL SUVs and two 2014 Chevrolet Suburban LTZ SUVs, each bought for about two-thirds of the original sticker price. The SUVs were acquired from a rental car company auction.

Newton advises against buying a vehicle hoping it will attract business. Operators should verify a steady client demand for a particular vehicle, first. Newton holds on to his vehicles for as long as possible, without any required time for turnover.“I run as lean as I can.” He does not finance his vehicles and pays cash.

“I’m not too concerned about resale. There’s always somebody to buy your cars. I’m more concerned about profitability. I won’t sell a vehicle just because I’ll get $5,000 more from the sale. You only sell your vehicle if there is a radical change in body style.”

Regal also runs two 14-passenger vans, 2011 Ford E350 models, that Newton bought at $21,500 each, with 18,000 and 11,000 miles. “The vans were sold on E-Bay,” he says. “They were fully loaded, black on black. A production company had bought them brand new and used them for two and a half months for crew transport during the filming of a movie.” The vans were once listed at more than $50,000 each new.

Newer OutlookIn the vibrant limousine and party bus market of Los Angeles, operator Art Rivas has found that going new and upscale pays off in ways more than financial. For the last two years, Rivas has been transitioning his Limo4me.com operations from a mostly used party bus fleet into newer models that serve corporate markets, shuttle contracts and high-end leisure and special events trips.

Limo4me.com operates about 20 shuttle buses, 20 limo buses and a handful of traditional chauffeured vehicles such as sedans, SUVs and stretches. The liability and regulatory challenges mounting for limo and party buses has spurred him to lean toward new buses instead of pre-owned.

“We’ve gone from 20 to 12 pre-owned buses, with many expiring because of carbon filter laws,” says Rivas, who is diligent about working with inspectors to stay in compliance. “Now that I’ve created a bigger brand, quality control has to be consistent. I can’t roll anymore old buses that might break down. I can’t take that chance.”

Rivas committed to making his fleet all-new. As of February, he did not have any vehicle models older than 2010. “If you have mechanical and electrical problems that are out of the scope of most mechanics, you can easily get new buses serviced and back into your fleet,” he says.

Like Rose Chauffeured Transportation, Rivas breaks out each vehicle as a separate profit unit. His most profitable vehicles are newer, high-end party buses that seat about 28 passengers and have a restroom in the rear. “You should offer the public the confidence of a newer bus,” Rivas says. “It’s safer, under a 100% warranty, and if there is a problem, the part can be replaced very quickly.”

Max For The MinimumAvanti Transportation’s Reindl has reached what many would consider the ideal business model for a medium-sized limousine company. You could call it cash-in-cash-out fleet flipping. He pays cash for high-use chauffeured vehicles with cash, but like Rivas, always buys vans and buses new on three-year loans.

“Everything lasts with good maintenance,” Reindl says. “If I buy a brand new vehicle with zero miles versus 15,000 miles, I don’t see the difference and the customer doesn’t see the difference. It saves me $10,000 to $12,000 on the purchase price.”

Avanti buys the smaller, frequently used chauffeured vehicles like sedans and SUVs at about 8,000 to 15,000 miles each and then sells them at 120,000 to 140,000 miles, still commanding a decent resale price. The only exceptions are Avanti’s Sprinter Vans and mini-buses, which Reindl always buys new because of warranties.

In January, Avanti sold its first 2013 Lincoln MKS sedan with 125,000 miles on it for $17,000 after having bought it two years ago for $30,000 with 15,000 miles. The car did a high volume of business, racking up 110,000 miles. “That was a hell of a deal,” Reindl says. “It cost me about $12,000 to run the car for two years. Now I’m going to get $17,000 for it and put in another $10,000 to get another (pre-owned car).”

Reindl keeps a pre-owned vehicle for a maximum of two years. “You have to have a decent business to achieve that. Without creating a profit, you can’t do it. You have to be consistent for a few years to put everything back into the company.”

During an economic downturn, a cash-based fleet operation is less vulnerable to big losses in business. “Houston is not doing well because of declining oil prices and layoffs,” Reindl says. “It’s nice for peace of mind not to have payments. I can get in and out of a vehicle in a split second because I don’t owe anything.”

He recalls when the recession caused company revenues to plunge by $1 million in 2008, he did not have to lay off any employees or sell any vehicles. “We stayed where we were at and never had a problem paying our bills. You have to be able to withstand some type of downturn in the economy for a while.”

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